Social Security: Cost-of-Living Adjustments
Updated October 14, 2020
Congressional Research Service
https://crsreports.congress.gov
94-803

Social Security: Cost-of-Living Adjustments

Summary
To compensate for the effects of inflation, Social Security recipients usually receive an annual
cost-of-living adjustment (COLA). According to parameters outlined in the Social Security Act
(42 U.S.C. §415(i)), a 1.3% COLA is payable in January 2021. For a retired worker receiving the
average monthly benefit amount of $1,523, the COLA will result in a $20 increase in Social
Security benefits (after final rounding down to the nearest dollar for a total of $1,543).
Social Security COLAs are based on changes in the Consumer Price Index for Urban Wage
Earners and Clerical Workers (CPI-W), updated monthly by the Department of Labor’s Bureau of
Labor Statistics (BLS). The COLA equals the growth, if any, in the index from the highest third
calendar quarter average CPI-W recorded (typically, from the previous year) to the average CPI-
W for the third calendar quarter of the current year. The COLA becomes effective in December of
the current year and is payable in January of the following year. (Social Security payments always
reflect the benefits due for the preceding month.)
If there is no percentage increase in the CPI-W between the measuring periods, no COLA is
payable. In other words, the Social Security COLA can never be negative, and benefit levels are
not reduced, even during times of a decreasing price index. No COLA was payable in January
2010, January 2011, or in January 2016.
The January 2021 COLA will also be applied to Supplemental Security Income (SSI) and railroad
retirement “tier 1” benefits, among other changes in the Social Security program. Although
COLAs under the federal Civil Service Retirement System (CSRS) and the federal military
retirement program are not triggered directly by the Social Security COLA, these programs use
the same measuring period and formula for computing their COLAs. As a result, their recipients
will receive a similar COLA payable in 2021.

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How Is the Social Security Cost-of-Living
Adjustment Calculated?
A cost-of-living adjustment (COLA) is calculated automatically each year and is intended to
reflect the change in the cost of living over a one-year period. The Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W), updated monthly by the Bureau of Labor
Statistics (BLS), is the measure used to calculate whether a COLA will be triggered. The CPI-W
is an estimate of the average change in prices of the goods and services purchased by households
whose incomes come primarily from clerical or wage occupations.1 This population is composed
of urban households receiving more than one-half of their incomes from clerical occupations or
hourly wages and with at least one member having worked 37 weeks in the previous 12 months
(about 29% of the total U.S. population).2 The BLS measures the price change of each item in a
“basket” of goods that the average person purchases, and then it computes overall inflation. It
weights each of those price changes by the item’s share of spending.
The Social Security COLA is based on the percentage increase in the index from the highest third
calendar quarter average CPI-W recorded (typically, from the previous year) to the average CPI-
W for the third calendar quarter of the current year. The percentage increase is rounded to the
nearest one-tenth of 1% (0.1%).3 The Social Security benefit amount, after applying the COLA, is
rounded down to the next lowest dime.4 If the CPI-W triggers a COLA, the COLA becomes
effective in December of the current year and is payable in January of the following year. (Social
Security payments always reflect the benefits due for the preceding month.)
In some years, the CPI-W does not increase. In fact, sometimes a decrease has been recorded. In
those years, no COLA was payable as required by law.5 Benefits were not reduced to mirror the
reduced cost of living but were held to the previous period’s levels. The Social Security COLA
can never be negative, even during times of a decreasing price index.6 See “What Happens When
No COLA Is Payable?” for more explanation.
Prior to 1975, Congress sporadically approved COLAs through the adoption of legislation.
Automatic Social Security COLAs became effective in 1975 after being established in 1972 as
part of P.L. 92-336, which included a number of amendments to the Social Security program.7
The legislation created Section 215(i) of the Social Security Act and required inflation to be at

1 For an overview of the Consumer Price Index (CPI), see Department of Labor (DOL), Bureau of Labor Statistics
(BLS), “Consumer Price Index Frequently Asked Questions,” at https://www.bls.gov/cpi/questions-and-answers.htm;
and Clark Burdick and Lynn Fisher, “Social Security Cost-of-Living Adjustments and the Consumer Price Index,”
Social Security Bulletin, vol. 67, no. 3 (2007), at http://www.ssa.gov/policy/docs/ssb/v67n3/v67n3p73.html. For more
information on using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and
considering an alternate inflation index, see CRS Report R43363, Alternative Inflation Measures for the Social Security
Cost-of-Living Adjustment (COLA).
2 DOL, BLS, “Consumer Price Index Frequently Asked Questions: Whose Buying habits Does the CPI Reflect?” at
https://www.bls.gov/cpi/questions-and-answers.htm#Question_6.
3 42 U.S.C. §415(i)(1)(D) and 20 C.F.R. §404.275.
4 20 C.F.R. §404.275.
5 Section 215(i) of the Social Security Act (42 U.S.C. §415(i)).
6 See Social Security Administration (SSA), “Cost-Of-Living Adjustment Must Be Greater Than Zero,” at
https://www.ssa.gov/OACT/COLA/positivecola.html.
7 P.L. 92-336, at https://uscode.house.gov/statutes/pl/92/336.pdf.
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least 3% during the specified base period before a COLA could be triggered.8 As part of the
Omnibus Budget Reconciliation Act of 1986 (OBRA 86; P.L. 99-509), lawmakers eliminated the
3% trigger, requiring instead that, for a COLA to be payable, inflation (or wage growth in certain
cases) be greater than 0% during the specified base period.
The legislation referred only to the Consumer Price Index (CPI), which at the time was the only
index BLS produced and pertained to urban wage earners and clerical workers. In 1978, BLS
made revisions to the CPI for Urban Wage Earners and Clerical Workers, which was renamed as
the CPI-W, and introduced the CPI for All Urban Consumers (CPI-U).9 The Social Security
Administration opted to use the revised CPI-W for calculating the Social Security COLA, as had
been promulgated in regulations.10
What Is the COLA to Be Paid in January 2021?
On October 13, 2020, the Social Security Administration (SSA) announced that a 1.3% Social
Security COLA would be paid in January 2021.11 The BLS release of the September 2020 CPI-W
on that day made possible the comparison of the two July-September sets of CPI-W data (one for
2019 and another for 2020) needed to compute the COLA. Table 1 shows how the determination
for a January 2021 COLA is computed under procedures set forth in Section 215(i) of the Social
Security Act.
Table 1. Determination of a Potential Social Security Cost-of-Living Adjustment
(COLA), January 2021

CPI-W Index Points
July 2019
250.236
August 2019
250.112
September 2019
250.251
Average for Third Quarter of 2019 (rounded to the nearest one-thousandth of a point):
250.200
July 2020
252.636
August 2020
253.597
September 2020
254.004
Average for Third Quarter of 2020 (rounded to the nearest one-thousandth of a point):
253.412
Percentage increase or decrease from the third quarter average for 2019 to the third
((253.412-250.200)/250.200) * 100% =
quarter average for 2020 and multiplied by 100% (rounded to the nearest one-tenth of
1% for the final application, when positive, as required by law):
1.3%
Social Security cost-of-living adjustment (zero if the percentage change is negative):
1.3%
Source: Department of Labor (DOL), Bureau of Labor Statistics (BLS) data series for the Consumer Price Index
for Urban Wage Earners and Clerical Workers (CPI-W) for 2019 and 2020, at https://www.bls.gov/cpi/data.htm.
Note: The reference base period for the CPI-W is 1982-1984 (i.e., the period when the index equaled 100).

8 42 U.S.C. §415(i).
9 Stephen B. Reed and Kenneth J. Stewart, “Why Does BLS Provide Both the CPI-W and CPI-U?” BLS Beyond the
Numbers, vol. 3, no. 5 (2014), at https://www.bls.gov/opub/btn/volume-3/why-does-bls-provide-both-the-cpi-w-and-
cpi-u.htm.
10 20 C.F.R §404.272.
11 SSA, “Social Security Announces 1.3 Percent Benefit Increase for 2021,” press release, October 13, 2020, at
https://www.ssa.gov/news/press/releases/2020/#10-2020-1.
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What Happens When No COLA Is Payable?
Since automatic Social Security benefit COLAs began in 1975, there have been three years in
which no COLA was payable: 2010, 2011, and 2016. The Social Security Act specifies that a
COLA is payable automatically if the average CPI-W for the third quarter of the current year is
higher than the highest average CPI-W for the third quarter of past years, which is called the
“cost-of-living computation quarter.” From 1975, when this provision became effective, to 2008,
a new cost-of-living computation quarter was established in each subsequent year, which
triggered the payment of a COLA each year.
If the average CPI-W for the third quarter of the current year is equal to or less than the average
CPI-W for the cost-of-living computation quarter, no COLA is payable. For example, the average
CPI-W for the third quarter of 2009 was less than the average CPI-W for the third quarter of 2008
(211.001 and 215.495, respectively). As a result, an automatic COLA in January 2010 was not
triggered and the third quarter of 2008 remained the cost-of-living computation quarter (i.e., the
benchmark) used to determine if a COLA would be payable in January 2011.12 Though the
average CPI-W for the third quarter of 2010 (214.136) was greater than the average CPI-W for
the third quarter of 2009, it did not exceed the average CPI-W for the third quarter of 2008. The
third quarter of 2008 remained the cost-of-living computation quarter for at least one more year
and a COLA was not payable in January 2011.
When the average CPI-W for the third quarter of 2011 (223.233) exceeded that for 2008, a 2012
COLA was triggered and the third quarter of 2011 became the cost-of-living computation quarter.
New cost-of-living computation quarters were subsequently established in each year from 2012 to
2014, when the average CPI-W for the third quarter of 2012, 2013, and 2014 exceeded that for
the third quarter of each preceding year.
Similarly, since the average CPI-W for the third quarter of 2015 (233.278) did not exceed that of
2014 (234.242), no COLA was paid in January 2016. Thus, for the COLA payable beginning in
January 2017, the cost-of-living computation benchmark quarter remained the third quarter of
2014 where it was compared with the average CPI-W for the third quarter of 2016.13
See Table 2 for a recent history of average CPI-W performance for the third calendar quarter, and
how that has affected changes to the cost-of-living computation quarter and the triggering of
COLAs in some years.

12 Section 215(i) of the Social Security Act (42 U.S.C. §415(i)) specifies that no COLA is payable in subsequent years
until the average CPI-W for the third quarter of the current year is greater than that for the last cost-of-living
computation quarter.
13 The Congressional Budget Office (CBO) and the Social Security Trustees both project continued annual COLAs
beyond 2020. For more information, see CBO, “Social Security Old-Age and Survivors Insurance – CBO’s Baseline as
of March 6, 2020,” March 2020, p. 3, at https://www.cbo.gov/system/files/2020-03/51308-2020-03-socialsecurity.pdf,
and SSA, The 2020 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and the
Disability Insurance Trust Funds, April 2020, Table V.C1, at https://www.ssa.gov/oact/TR/2020/tr2020.pdf.
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Table 2. Average CPI for Urban Wage Earners and Clerical Workers (CPI-W) for the
Third Quarter, 2007-2020
(cost-of-living computation quarters and COLAs)
New Cost-of-Living
Average CPI-W for the
Computation Quarter
Year
Third Quarter
Established
Resulting COLAa
2007
203.596
yes
2.3%
2008
215.495
yes
5.8%
2009
211.001
no (215.495 of 2008 retained)
no COLA
2010
214.136
no (215.495 of 2008 retained)
no COLA
2011
223.233
yes
3.6%
2012
226.936
yes
1.7%
2013
230.327
yes
1.5%
2014
234.242
yes
1.7%
2015
233.278
no (234.242 of 2014 retained)
no COLA
2016
235.057
yes
0.3%
2017
239.668
yes
2.0%
2018
246.352
yes
2.8%
2019
250.200
yes
1.6%
2020
253.412
yes
1.3%
Source: Created by CRS using data from DOL, BLS.
a. Payable in January of the fol owing year (when applicable).
Social Security benefit amounts cannot be reduced if the CPI-W decreases between the
measuring periods. If the performance of the CPI-W does not trigger a COLA, benefits remain
the same (prior to deductions for Medicare Part B and Part D premiums).
Medicare Premiums and a Very Small or No COLA14
The absence of a COLA increase (or a very small increase) may impact certain Medicare Part B
enrollees.15 For Medicare Part B enrollees who have their Part B premiums withheld from their
monthly Social Security benefits, a hold-harmless provision in the Social Security Act (§1839[f])
ensures that their net benefits will not decrease as a result of an increase in the Part B premium.16
In most years, the hold-harmless provision has little impact; however, in a year in which there is a
small or no increase in the Social Security COLA and a Part B premium increase, the hold-
harmless provision may apply to a much larger number of people. For example, as a result of a
0% Social Security COLA in 2016 and a 0.3% COLA in 2017, an estimated 70% of Medicare
beneficiaries were protected by this provision in those years and their Medicare Part B premiums
were reduced so that their Social Security benefits, net of the Medicare Part B premium, would

14 This section was written by Patricia A. Davis, Specialist in Health Care Financing.
15 For a full discussion of this relationship, see CRS Report R45324, The Interaction Between Medicare Premiums and
Social Security COLAs and CRS Report R40082, Medicare Part B: Enrollment and Premiums.
16 42 U.S.C. §1395r(f).
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not decline.17 As a result of the relatively higher 2.0% Social Security COLA in 2018, the hold-
harmless provision was not as broadly applicable in that year, and the percentage of Medicare
Part B enrollees held harmless in 2018 declined to 28%.18 In 2019 and 2020, the Social Security
COLAs of 2.8% and 1.6%, respectively, were large enough that very few Medicare Part B
enrollees (about 3.5% and 3%, respectively) were held harmless and paid lower premiums.19
A number of unknown factors, including the effects of the Coronavirus Disease 2019 (COVID-
19) pandemic, will determine the extent to which the hold-harmless provision may apply in 2021.
In the event of no or a very small Social Security COLA for 2021, it is possible that a greater
proportion of Medicare Part B enrollees could be held harmless in 2021 than in 2020.20
Regardless of the size (or absence) of a COLA, beneficiaries may see a net reduction in Social
Security benefits as a result of increases in their Medicare Part D premiums or changes in their
Medicare Part D plan selections.21
What Is Affected Besides Social Security Benefits?
Other Programs
Social Security COLAs trigger increases in other programs. Supplemental Security Income (SSI)
benefits22 and railroad retirement “tier 1” benefits23 (the portion of the railroad retirement benefit
equivalent to a Social Security benefit) are increased by the same percentage as the Social
Security COLA or are held constant when a COLA is not paid to Social Security beneficiaries.
Railroad retirement “tier 2” benefits (equivalent to a private pension) are increased by an amount
equivalent to 32.5% of the Social Security COLA.24 (If no COLA is paid to Social Security
beneficiaries, then the railroad retirement tier 2 benefits are not increased.) Veterans’ pension
benefits often are increased in the same amount as Social Security, but legislation must be passed
annually for this purpose.25
Although COLAs under the Civil Service Retirement System (CSRS) and the federal military
retirement system are not triggered by the Social Security COLA, these programs use the same

17 The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74) provided some relief to the remaining 30% of
beneficiaries not covered by the hold-harmless provision in 2016. This relief was not applicable in 2017, although the
Secretary of the Department of Health and Human Services “exercised her statutory authority to mitigate projected
premium increases for these beneficiaries” to some extent. For more information on the impact of Medicare premiums
on Social Security benefits, see CRS Report R40082, Medicare Part B: Enrollment and Premiums.
18 Ibid., p. 31.
19 Ibid.
20 The extent to which the hold-harmless rule applies in 2021 may be somewhat mitigated by Section 2401 of the
Continuing Appropriations Act, 2021 and Other Extensions Act (P.L. 116-159), which limits Medicare Part B premium
growth in 2021. The Centers for Medicare & Medicaid Services generally issue an announcement in the fall about the
next year’s Medicare Part B premiums.
21 See CRS Report R40611, Medicare Part D Prescription Drug Benefit, for details.
22 The automatic COLA was authorized to apply to Supplemental Security Income in 1974 by P.L. 93-368.
23 The Railroad Retirement Act of 1974, P.L. 93-445, applied the Social Security COLA to Railroad Retirement, tier 1
benefits.
24 The Railroad Retirement Act of 1974, P.L. 93-445, authorized this formula to be applied to Railroad Retirement, tier
2 benefits.
25 Congress did not adopt COLAs for veterans’ pensions in 2010, 2011, and 2016 when no Social Security COLA was
paid.
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measuring period and formula for determining their COLAs. The COLA for recipients of Federal
Employees’ Retirement System (FERS) benefits equals the Social Security COLA if inflation is
2% or less, but is lower than the Social Security COLA otherwise.26
Social Security Program Elements
Some Social Security program elements, such as the contribution and benefits base (or the
maximum level of Social Security covered earnings subject to Social Security payroll taxes), the
retirement earnings test (RET) exempt amounts, and the substantial gainful activity (SGA) amount
for the blind (which applies to Social Security disability beneficiaries), are indexed to wages, as
opposed to prices.27 Although changes to those three elements are based on growth in national
average wages (rather than changes in prices), these elements can be increased only when a
COLA is payable. If a COLA is payable, then these amounts increase by the percentage that the
national average wage index has increased.28 The contribution and benefits base, the RET exempt
amounts, and the SGA amount for the blind were unchanged in 2010, 2011, and 2016 when no
COLA was payable.29
For example, had there been a COLA trigger in 2015, the contribution and benefits base would
have increased from $118,500 in 2015 to $122,700 in 2016.30 Because there was no COLA trigger
in 2015 applicable to Social Security benefits payable in 2016, the base instead remained
unchanged. With the 0.3% COLA announced in 2016 for benefits payable in 2017, the
contribution and benefits base increased in 2017 as well. Similar to how the COLA’s reference
period is calculated, the increase in the contribution and benefits base was calculated on the
increase in the average wage index from 2013 to 2015 (about 7.2%).31
Historical COLA Values
Table 3 shows the history of Social Security COLAs since the automatic COLAs began in 1975.

26 For more information on the adjustment of federal benefits for inflation, see CRS Report 94-834, Cost-of-Living
Adjustments for Federal Civil Service Annuities and CRS Report RL34751, Military Retirement: Background and
Recent Developments.
27 Changes in other Social Security elements are tied to the increase in national average wages, yet may be altered even
if a COLA is not payable. These elements include the amount of earnings needed for a Social Security “quarter-of-
coverage,” the monthly substantial gainful activity amounts for non-blind Social Security disability beneficiaries, and
the annual coverage thresholds for domestic workers and election workers. For additional information, see SSA,
“Quarter of Coverage,” at https://www.ssa.gov/OACT/COLA/QC.html; SSA, “Determinations of Substantial Gainful
Activity (SGA),” at https://www.ssa.gov/oact/cola/sgadet.html; and SSA, “Employment Coverage Thresholds,” at
https://www.ssa.gov/OACT/COLA/CovThresh.html.
28 Sections 230(a), 203(f)(8), and 223(d)(4)(A), respectively, of the Social Security Act (42 U.S.C. §§430(b), 403(f)(8),
and 423(d)(4)(A), respectively). For additional information about these program elements, see CRS Report RL32896,
Social Security: Raising or Eliminating the Taxable Earnings Base; CRS Report R44670, The Social Security
Retirement Age; CRS Report R41242, Social Security Retirement Earnings Test: How Earnings Affect Benefits; and
SSA, “Determinations of Substantial Gainful Activity (SGA),” at https://www.ssa.gov/oact/cola/sgadet.html.
29 For more information on the interactions between the contribution and benefits base, the retirement earnings test
(RET) exempt amounts, the substantial gainful activity (SGA) amounts, and other program elements with the COLA,
see SSA, “Cost-of-Living Adjustment (COLA) Information for 2021,” October 2020, at https://www.ssa.gov/news/
cola/.
30 The average wage index in 2015 ($48,098.63) was about 3.5% larger than the 2014 average wage index of
$46,481.52, and the contribution and benefits base is rounded to the nearest $300.
31 Because the national average wage index tends to increase faster than the inflation of prices, these elements that are
indexed to the growth in average wages tend to increase faster than the elements that are tied to the COLA.
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Table 3. History of Social Security Cost-of-Living Adjustments Since Automatic
Adjustments Began in July 1975
Amount of Increase
Date Increase Was Paid
(percentage)
January 2021
1.3%
January 2020
1.6
January 2019
2.8
January 2018
2.0
January 2017
0.3
January 2016
0.0
January 2015
1.7
January 2014
1.5
January 2013
1.7
January 2012
3.6
January 2011
0.0
January 2010
0.0
January 2009
5.8
January 2008
2.3
January 2007
3.3
January 2006
4.1
January 2005
2.7
January 2004
2.1
January 2003
1.4
January 2002
2.6
January 2001
3.5
January 2000
2.5a
January 1999
1.3
January 1998
2.1
January 1997
2.9
January 1996
2.6
January 1995
2.8
January 1994
2.6
January 1993
3.0
January 1992
3.7
January 1991
5.4
January 1990
4.7
January 1989
4.0
January 1988
4.2
January 1987
1.3
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Amount of Increase
Date Increase Was Paid
(percentage)
January 1986
3.1
January 1985
3.5
January 1984
3.5
July 1982
7.4
July 1981
11.2
July 1980
14.3
July 1979
9.9
July 1978
6.5
July 1977
5.9
July 1976
6.4
July 1975b
8.0
Source: See Social Security Administration (SSA), “Historical Background and Development of Social Security,”
at http://www.socialsecurity.gov/history/briefhistory3.html, for data prior to 1975; and SSA, “Social Security
Cost-Of-Living Adjustments,” at http://www.socialsecurity.gov/oact/COLA/colaseries.html, for data since 1975.
a. Originally computed as 2.4%, the cost-of-living adjustment payable in January 2000 was corrected to 2.5%
under P.L. 106-554.
b. First automatic cost-of-living adjustment began.
Table 4 provides a comprehensive summary of all ad-hoc legislative COLAs to Social Security
benefits before automatic adjustments began in July 1975. The first increase occurred in October
1950, 10 years after Social Security benefits were first paid in 1940. At that time, Social Security
benefits were increased by 77%. After 1950, smaller increases were granted by separate
legislation at irregular intervals. Table 4 shows the percentage increases and the dates from which
these increases were paid. As noted, in 1974 the increase occurred in two steps: an increase of 7%
was paid from April 1974 until June 1974, and an increase of 11% was paid from July 1974
onward. Both increases used February 1974 as the base level. Authorization for the automatic
benefit increase beginning in 1975 appears as part of P.L. 92-336.

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Table 4. Social Security Cost-of-Living Adjustments Prior to Automatic Adjustments
(Pre-1975)
Date Increase Paida
Amount of Increase
Public Law
(percentage)
July 1974
11%b
P.L. 93-233
April 1974
7b
P.L. 93-233
October 1972
20.0
P.L. 92-336c
February 1971
10.0
P.L. 92-5
February 1970
15.0
P.L. 91-172
March 1968
13.0
P.L. 90-248
February 1965
7.0
P.L. 89-97
February 1959
7.0
P.L. 85-840
October 1954
13.0
P.L. 83-761
October 1952
12.5
P.L. 82-590
October 1950
77.0
P.L. 81-734
Source: Created by CRS using data from SSA, Annual Statistical Supplement, 2017, Table 2.A19, at
https://www.ssa.gov/policy/docs/statcomps/supplement/2017/2a8-2a19.html#table2.a19, and SSA, “Historical
Background and Development of Social Security,” at https://www.ssa.gov/history/briefhistory3.html.
a. The increase was effective the month prior to the month in which the increase was paid.
b. In 1974, an increase was applied in two steps. For April, May and June, a limited-duration increase was paid
at 7% from the base level as of February 1974. After July, an increase of 11%, from the base level in
February 1974, was paid.
c. In January 1975, automatic benefit increases begin and are indexed to the CPI-W. This change was
authorized in 1972 by P.L. 92-336.

Author Information

Paul S. Davies
Tamar B. Breslauer
Specialist in Income Security
Research Librarian

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Disclaimer
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Congressional Research Service
94-803 · VERSION 36 · UPDATED
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